Do you know about - Irs Audit - A True Story
Sample Donation Request Letters! Again, for I know. Ready to share new things that are useful. You and your friends.Who does not fear an Irs audit? We all do. We all fear the face to face, exhausting, unpredictable and time lively interaction with the Internal wage Service's agent.
What I said. It is not outcome that the actual about Sample Donation Request Letters. You check out this article for information on a person wish to know is Sample Donation Request Letters.How is Irs Audit - A True Story
We all have that scary feeling when submitting our tax return... Would I be audited? Was I too aggressive? Will the Irs "red flag" my tax return? Maybe I should ask for a lower reimbursement so I will not be audited...
And then the reimbursement check comes along, we deposit the check in our bank account and after a while we tend to forget about the Irs, the audit and our fears remain nothing but an old memory.
For most of us, the story stops here (at least until next year). For some it just starts. The real story begins when you open your mail and see an envelope from the Internal wage aid and in it a letter notifying you that your tax return is being audited. Wow!!! an audit. What should I do now, you are request yourself? imagining the end of the world.
Best thing to do at this point is to "face your fears". Read the observation carefully, see what the Irs wants, what year is being audited, the extent of the audit (partial, full, examination) and what is the required documentation, and then, call a Cpa.
A Cpa that specializes in audits, has the experience, knowledge and skills to great confront the Irs, and maneuver straight through the tricky road of an audit.
Face Your Fears
Our real life story begins at the point, in which I have received such a letter from a client, notifying him that his 2002 tax return is being audited by the Irs and request him to pay extra taxes of ,000. Needless to say that the client (a small company owner from the "Big Apple") was extremely confused, implicated and nervous.
Since I have not prepared the 2002 tax return and was only retained by the client to report him at the audit, the first thing I did was to explicate the client what are we facing.
An audit , I have explained, is not the end of the world. The goal in an audit, is to furnish the Irs as much facts as potential without disclosing unnecessary details. In the next few weeks we will go straight through the audit letter and your tax return and see which documents we should forward to the Irs to retain the return, I have added and asked the client to send me the tax return, the Irs observation and all supporting documents for the tax return.
After I have reviewed all of the information, it was clear to me why the Irs has decided to audit this exact tax return - the ratio in the middle of wage and expenses (deductions) on the return did not match the Irs averages and the fairly large incompatibility from the midpoint triggered the full Irs audit.
When I called the client and asked him why was the return filed overlooking the Irs statistics, he responded that it was a case of bad guidance he had received when establishment the tax return.
Too bad, I said, but again, not the end of the world.
We had 30 days to write back to the Irs, so we had to move fairly quickly nut not under pressure. Always ask more time, if you feel necessary.
Information, Information, Information
The next step was to derive all the relevant information, documents and statements that would help us retain the tax return. Normally, (and so in this case) the significant facts includes:
Bank statements
Copies of cancelled checks
Receipts of deductions claimed on the return
Income statement narrative - also known as behalf and loss narrative (if you have company wage and expenses)
Payment verifications - for mortgage, asset tax, donations and other deductions
So, we have started collecting the information; calling the banks, mortgage companies, county administration and suppliers billing departments, request for copies of documents, receipts, checks and statements. Within 3 arduous weeks we had all the required information.
To assure I am not missing anything, I went straight through the tax return thoroughly, and checked each and every item on it, marking all the documents that retain and correspond to each item.
The clock was ticking quickly, we had one more week to go until the Irs deadline expires.
One on One with the Irs
At this point I have reviewed the client's tax return and all supporting documents, I knew what are the problems with the return and what will the Irs agent look for.
I was ready to go one on one with the Irs.
I have called the Irs agent, nice but very definite lady (who was not too happy with my ask to meet her after the deadline expires) and set up a meeting at her office to show the way the audit.
On the audit date, I showed up right on time, 9:30am, ready with all the significant information. The Irs agent showed me to her office, settled behind locked door ("Only worker Beyond This Point"). She did not hide the fact that she was very skeptic about this taxpayer and tax return and indicated that the numbers look very odd.
The first part of the audit included a long series of questions about my client. In this section the Irs tries to derive facts about the taxpayer, his income, expenses and assets. The Irs goal is to cause you to disclose data which will support the agents in determining that your tax return is incorrect (or even worse, fabricated):
Where does he live?
What is his profession?
Where is his business?
Who are his clients?
Who are his suppliers?
What are his source of income?
Where does he bank? What kind of assets he owns?
and many other questions about the taxpayer, his company and operation.
I have answered the agent, providing her only with the facts I wanted to disclose about the taxpayer and not a drop more. It is very foremost you write back the questions openly without volunteering facts that has not been asked for.
Once this part was over, the moment of truth has arrived: the numbers. At this point I pulled out a huge package I have prepared in advance which included hundreds of documents, statements and most importantly a summary of all the data in one easy narrative with recommendation to reduce the added tax from ,000 to ,000!!!
I have explained The Irs agent about the package I brought with me and suggested going straight through all of the documents (knowing that it could take long long time) or use my summary narrative and sample few of the items to verify its accuracy. The agent who was motivated by her will to finalize this audit, embraced my second recommendation and asked to see my summary report.
She took my narrative and ask me for supporting documents of some deductions included in the summary. I was ready with all the supporting documents and therefore was able to verify each of the inquiries. After she received proof for the accuracy of about 10 items the agent felt comfortable enough to accept my narrative as true and correct.
End effect of the audit was an added tax ,000, a long way from the traditional ,000 asked by the Irs.
Conclusion
When you receive an audit letter from the Irs - do not panic.
Review the letter, see what exactly is being audited and what is needed to proceed.
Call your Cpa for guidance and representation (your Cpa is great equip to deal with the Irs's tricky questions).
Prepare for the audit completely and derive all the significant facts to retain your tax return.
Do not rush to reply, get an prolongation for responding to the Irs notice.
Identify the problematic areas in your tax return and try to draw attention away from them.
Be honest (but not to open, do not volunteer information) with the Irs agent.
Try to lead the audit not to effect it.
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